Soar Or Sour: Short Run, *Then* What?

The sound of economic sizzle finally within earshot, though perhaps nearly a year too late. PMI’s for the month of March 2021 were of the sort which should have come about in May and June 2020. The “V”-shaped recovery was much talked about at that earlier time, though in PMI terms (as well as regular “hard” data) the numbers fell way, way short of it.

I and others had pointed out repeatedly that to be consistent with an actual recovery, given the depths from where the recession began, the indices really needed to get up into the high 60s if not low 70s. Both sets – manufacturing and non-manufacturing – for both of data providers – ISM and Markit – started out moving in that direction before falling off well short.

With (further) reopening back on the schedule again, plus Uncle Joe’s Uncle Sam $1400, US sentiment surveys finally soared last month – at least in the ISM versions. According to the latter, manufacturing pumped up to 64.7, rising just less than 4 pts; non-manufacturing soared 8.4 pts in March, reaching a similarly gaudy, just nearly V-like 63.7.

Markit’s take was hardly subdued, it just didn’t change all that much in March 2021 from February: manufacturing headline up to 59.7 from 59.5, though still a bit lower than the 60.5 in December; services rising to 60.4 from 59.8, the highest in nearly seven years.

These plus the near-million March payroll number, the US economy seems set finally to reach into that whole inflationary acceleration trajectory the world’s been hearing about – and counting on – for just about a year. Better late than never?

That’s the thing; as noted earlier todayeverything seems to be lined up just perfectly. Vaccinations are rolling out, more states (even California) loosen themselves up, and the government continues to throw cash around to anyone who can breathe (and quite a few, apparently, who aren’t taking breaths). Trillions upon trillions before then Jay Powell and the Fed’s similar-sized puppet shows.

For a few months, there, even the bond market imagined how great this could turn out to be. Reflation, the more noticeable kind, materialized early in January and for almost two months it didn’t look back. As usual, the rise in rates triggered the hyper-response of BOND ROUT!!!! which, during this, again seemed plausibly plodding toward the long-promised inflationary (recovery) condition.

Funny thing, though, even as some of the data starts to obtain more “V”-ish properties for the first time, the reflationary markets may have gotten themselves out of it. This didn’t start in crude oil but the analysis of it really does.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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